How to Deal With an Income Tax Notice Should You Get One

To deal with an income tax notice, one should know why the notice is issued. There are multiple reasons for the income tax department to issue a notice. It can be because of an arithmetical error in the return, non-filing of income tax return, non-disclosure of income, etc. Even a slight mistake can invite a notice from the income tax department. 

The number of income tax notices issued by the income tax department has increased in recent years. Digitisation of administrative procedures, linking PAN and Aadhaar, and stricter know-your-customer norms have improved monitoring and tracing of the transactions. Hence, one should ensure proper disclosure of income and other necessary details to avoid inviting any notice. 

The notice can be received either on the registered email ID or by post at the PAN address.

One should revert to such notices or intimation keeping in view below important points:

• Check your basic personal details mentioned in the notice, including your PAN, to ensure that the notice is meant for you.
• Verify the sender’s details, like the name, designation, and signature and stamp, to ensure the notice’s validity.
• There is a timeline to issue and serve the notice by the tax officers. Hence, preserve the envelope to challenge its validity. For example, a notice sent for scrutiny assessment shall be issued within six months from the end of the relevant assessment year. Otherwise, it is considered invalid.
• Keep a hard and soft copy of the notice, being an important communication, and one cannot afford to lose it.
• Understand the notice requirements and decide whether to seek a professional’s help or manage it at your end. Not all notices need professional consultancy. One can rectify the return or reply to the notice for any technical or minor issues.

Let us understand how we can reply to a few types of notices issued by the income tax department.

Notice for filing of return of income

An income tax officer may notice you asking why the income tax return was not filed, for the bank transactions made during the year (mentioned in the notice) or any high-value transactions traced by them. If you agree with the fact, then the return must be filed within the date specified. If you disagree, then reply to the tax officer by explaining the nature of the transaction and why it does not make you liable to file the income return as per the law. 

If the return is filed, the income tax officer may ask you to explain or furnish additional details about the details given in the income return. 

Furnish the relevant documents required by the income tax officer. You may either represent yourself or seek a tax expert in complex types of cases.

Notice of defective return

The notice for defective return is issued for reasons related to an error in filing the income tax return like non-furnishing essential statements like a balance sheet or profit and loss account, proof of taxes paid not submitted, etc. If the defects are not rectified within 15 days, the return becomes invalid and considered as not filed. However, the facts of the notice must be valid. If the taxpayer disagrees or agrees with the defect, he should select the relevant option in the income tax portal’s defective return segment. If the taxpayer agrees with the defect, then a notice of defective return can be made by filing a revised return.

Notice of intimation 

All the income tax returns are processed at the centralised processing centre electronically. The returns can be processed with certain adjustments like disallowance of TDS claim/losses/deductions or any arithmetical errors. Before incorporating these adjustments, the income tax department sends an intimation to the taxpayer. If the taxpayer disagrees with any of the adjustments, then he should file the rectification return.

For example, the TDS claimed by the taxpayer is not allowed in the intimation. Because of which demand will be raised. TDS amount by the income tax department is considered from form 26AS. If there is a mismatch in the TDS amount as per 26AS and the amount of TDS deducted, you should reach the deductor to ensure that TDS is deposited and a return is filed. However, if the return is filed, verify whether the credit is not given to someone else’s account.

The income tax officer will not allow the TDS amount claimed unless the amount reflects in form 26AS. Hence, one should ensure the updation of form 26AS for the amount of TDS deducted. Once it is updated, you can rectify your income tax return by login into the income tax portal. 

However, if the TDS amount reflects in form 26AS and the same is not allowed as per the intimation in the above case, you can rectify your return without any changes if the details like TAN, name of the deductor or year of TDS deduction are correctly mentioned. 

Other common reasons for which the taxpayer can get the notice are:

1. Non-disclosure of income
2. Return randomly picked for scrutiny assessment
3. Long-term capital gains on equity not correctly reported
4. Tax evaded in previous financial years
5. Wrong income tax return form selected for filing an income tax return
6. Any error in filing the return of income

Hence, one should not panic if any notice is received but verify the notice’s requirements and file the revised or rectified return or furnish details to the income tax officer as may be required. And if the process is complex, then seek a tax expert’s advice and comply with the income tax department’s requirements. Not responding to the notice may cost you penalties. It could also lead you to imprisonment in some cases.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@cleartax.in